Power
Shifts!

Puru Saxena
17 Oct, 2005

I will start the proceedings
by making a bold claim - Asia powered by China, will provide
economic leadership over the coming decades.

Let us face it; America's days
as the undisputed global leader are now numbered. Unfortunately
for the US, history has never been kind to empires. They rise
from the ashes, flourish and eventually decay. The past is dotted
with glorious states, which ultimately faced the inevitable -
the eventual decline! The 16th century belonged to the Spanish,
the 19th century was dominated by the British and the 20th century
saw the growth of America. So, who will take charge of the 21st
century?

I am of the opinion that China
will dominate our planet in the future. You may think I am crazy.
But, if someone had told you in 1900 that the United States would
replace Britain as the world leader in the 20th century, you
would have pronounced him crazy too! So why am I so sure that
the dragon will rule?

Remember, the People's Republic
of China is a massive market with 1.3 billion people. When the
Chinese leaders unleashed capitalism 20 years ago, they changed
our world forever. The Chinese economy has been gradually opening
its doors and the effects are being felt today in several sectors.
The most profound impact has been felt in the commodities arena.
China is in the early stages of its industrialisation and per-capita
consumption is still depressed. Yet, China has already replaced
the US as the largest consumer nation in the world! China is
now the largest consumer of copper, zinc, tin, rubber, raw wool,
cotton, coal and major oil seeds. Furthermore, it is already
the second largest consumer of oil (despite a ridiculously low
per-capita consumption of 1.7 barrels when compared to 25 barrels
in the US!), aluminium, nickel and lead.

The point I am making is that
China's hunger for raw materials is going to increase in the
future. As more and more jobs are transferred to Asia, the standard
of living will rise. Wealthier people consume more things -
period. Multiply any small increases in consumption by the 1.3
billion Chinese and you get a gigantic figure! This thought must
have businesses dreaming all around the world!

China is now the 7th largest
economy in the world and worth US$1.4 trillion dollars. However,
adjusted for differences in purchasing power, the Chinese economy
is already the 2nd largest and over 60% of the size of the US
economy.

What will happen to domestic
demand (and commodity prices) when the 371.6 million Chinese
households start consuming more? You don't have to be a rocket-scientist
to figure out that the price of raw materials will go through
the roof!

Modern China boasts two major
cities - Shanghai and Beijing. Over the coming years, I suspect
another 15-20 major cities will spring up all over China. Already,
there is an exodus from rural areas towards urban centres and
these ambitious people will need housing and employment. If
America can boast of several major cities (New York, San Francisco,
Los Angeles, Washington DC, Houston etc.) then why can't China
build at least the same number? In my view, it is inevitable
that in a few years from now, Wuhan, Tianjin and Shenzhen will
one day light up the night sky as major American cities do today.
I want you to consider how much steel, copper, tin, lead and
energy will be used to build these cities.

In addition to this, what about
China's neighbour, the second most populated nation in the world?
India. It is home to 1.1 billion people and has 199.4 million
households. India, with a GDP of US$600 billion comes in as
the 12th biggest economy in the world. But, adjusted for differences
in purchasing power, it is already the 4th largest economy in
the world after the US, China and Japan!

Today, India has 34 colour
televisions per 100 households, 4.6 telephone lines per 100 people,
2.5 mobile phone users per 100 people, 0.7 computers per 100
people and 0.3 internet hosts per 1,000 people! In summary, India's
per-capita consumption is amongst the lowest in the world with
the capability of becoming the largest. Demand can only go one
way from here - up!

Still not convinced? Then,
consider the following statistics -

India has 6 cars per thousand
people and China's number comes in at a shockingly low 6.7 cars
per thousand people. Compare these figures with the developed
nations -

France - 491 cars
US - 481 cars
Japan - 428 cars
UK - 384 cars

Even Cambodia has 312 cars
per thousand people! I don't know about you but I am convinced
that India and China's car ownership won't remain so low forever.
No wonder then that car manufacturers all over the world are
drooling at the future! Oil demand is another story altogether.
Those who believe that this is just a temporary spike in prices
are living in a dream world! In the real world, the millions
of new cars, which the Chinese and Indians acquire, will be powered
by petrol. In the real world, unless someone finds a lot more
oil and finds it quickly, petrol prices will continue to defy
gravity for the years to come.

Over the past 200 years, commodities
had five secular bull-markets between the following periods -

The shortest bull-market lasted
15 years whilst the biggest commodity boom went on for a monstrous
40 years! The current bull-market is only 4-5 years old. If
history is any guide, the current commodity bull still has a
long way to go. As I have explained above, the emerging economies
of Asia will require immense quantities of "things"
over the coming years. Conclusion - investors must take positions
in tangibles for the long-term.

Puru Saxena publishes Money Matters, a monthly economic report, which highlights extraordinary investment opportunities in all major markets. In addition to the monthly report, subscribers also receive "Weekly Updates" covering the recent market action. Money Matters is available by subscription from www.purusaxena.com.

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients. He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.